Longwei Petroleum Investment Holding (LPH) 10-Q 2009 Q2 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

XQUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2008

_TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____ to _____

LONGWEI PETROLEUM INVESTMENT HOLDING LIMITED

 (Exact name of registrant as specified in its charter)

Colorado	0-31751	84-1536518
(State or other jurisdiction of incorporation)	(Commission File Number)	(IRS Employer Identification Number)
No.30 Guanghua Street, Xiaojingyu Xiang, Wanbailin District Taiyuan City, Shanxi Province, China P.C. 030024
(Address of principal executive offices)

Registrant’s telephone number, including area code:  (303) 885-5501

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YesX   No ___

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	Accelerated filer
Non-accelerated filer (Do not check if a smaller reporting company)	Smaller reporting company	X

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) Yes   NoX

Indicate the number of shares outstanding of each of the issuer's classes of stock, as of the latest practicable date.

Class of Securities	Shares Outstanding at December 31, 2008
Common Stock, no par value	76,205,000

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PART 1 - FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

(a) The unaudited financial statements of registrant for six months ended December 31, 2008, follow.  The financial statements reflect all adjustments which are, in the opinion of management, necessary to a fair statement of the results for the interim period presented.

TABLE OF CONTENTS

Balance Sheets

3

Statements of Operations and Comprehensive Income (Unaudited)

4

Statement of Changes in Stockholders’ Equity (Unaudited)

5

Statements of Cash Flows (Unaudited)

6

Notes to Unaudited Financial Statements

7

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LONGWEI PETROLEUM INVESTMENT HOLDING LIMITED

BALANCE SHEETS

AS OF DECEMBER 31, 2008 AND JUNE 30, 2008

				December 31, 2008				June 30, 2008
				Unaudited
ASSETS
Current assets:
Cash and cash equivalents		$		9,641,900		$		8,632,879
Accounts receivable				27,584,670				12,134,507
Inventories				18,746,621				29,052,841
Advance to suppliers				34,174,816				28,327,067
Deposits				15,829,974				12,683,880
Total current assets				105,977,981				90,831,174
Construction in progress				820,813				-
Property, plant and equipment, net				3,628,107				2,637,326
Total assets		$		110,426,901		$		93,468,500
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$		-		$		165,231
Convertible notes payable, net of discount of $ 0 and $636,742, respectively				2,268,000				1,508,135
Accrued payables				684,332				798,436
Taxes payable				4,048,948				2,455,223
Total current liabilities				7,001,280				4,927,025
Total liabilities				7,001,280				4,927,025
STOCKHOLDERS’ EQUITY
Common Stock; no par value, 100,000,000 shares authorized 76,205,000  and76,205,000 shares issued and outstanding as of 12/31/08 and 06/30/08, respectively				7,008,712				7,008,712
Additional paid-in capital				1,528,180				1,528,180
Retained earnings				82,992,579				68,742,653
Accumulated other comprehensive income				11,896,150				11,261,930
Total stockholders’ equity				103,425,621				88,541,475
Total liabilities and stockholders’ equity	$		110,426,901		$		93,468,500

See accompanying notes to the unaudited financial statements

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LONGWEI PETROLEUM INVESTMENT HOLDING LIMITED

STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (Unaudited)

FOR THREE MONTHS AND SIX MONTHSENDED DECEMBER 31, 2008 AND 2007

	Three months ended December 31,					Six months ended December 31,
			2008		2007			2008		2007
Net revenues:
Product sales		$	50,160,497	$	36,257,575		$	92,686,693	$	68,368,276
Agency service			3,482,490		3,472,219			5,431,780		7,850,190
			53,642,987		39,729,794			98,118,473		76,218,466
Cost of revenues
Product sales			41,703,435		28,302,891			76,538,910		53,737,384
Agency service			-		536,719			-		796,116
			41,703,435		28,839,610			76,538,910		54,533,500
Gross profit			11,939,552		10,890,184			21,579,563		21,684,966
Operating Expenses
Salaries			46,048		73,653			91,846		109,662
Other selling, general and administrative expenses			(3,049)		1,529,150			2,118,300		1,850,575
			42,999		1,602,803			2,210,146		1,960,237
Operating profit			11,896,553		9,287,381			19,369,417		19,724,729
Other income and (expenses)
Interest income			4,134		3,854			7,970		22,854
Interest expense and financial cost			(102,474)		(302,762)			(124,068)		(2,762)
Other income/(expense)			(98,340)		(298,908)			(116,098)		20,092
Income before income taxes			11,798,213		8,988,473			19,253,319		19,744,821
Income taxes			(3,038,764)		(3,237,624)			(5,003,393)		(6,675,202)
Net income			8,759,449		5,750,849			14,249,926		13,069,619
Other comprehensive income
Foreign currency translation adjustment			(436,430)		1,871,808			634,220		2,653,766
Comprehensive income		$	8,323,019	$	7,622,657		$	14,884,146	$	15,723,385
Basic net income per share		$	0.11	$	0.08		$	0.19	$	0.18
Weighted average number of shares outstanding			76,205,000		73,956,522			76,205,000		71,478,261

See accompanying notes to the unaudited financial statements.

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LONGWEI PETROLEUM INVESTMENT HOLDING LIMITED

STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (Unaudited)

FOR THE SIX MONTHS ENDED DECEMBER 31, 2008

	Common stock shares		Common stock amount		Additional paid-in capital		Retained earnings		Accumulated other comprehen- sive income		Total stockholders’ equity
Balance at June 30, 2008	76,205,000	$	7,008,712	$	1,528,180	$	68,742,653	$	11,261,930	$	88,541,475
Net income for the period	-		-		-		14,249,926				14,249,926
Foreign currency translation adjustment	-		-		-		-		634,220		634,220
Balance at December 31, 2008	76,205,000		7,008,712		1,528,180		82,992,579		11,896,150		103,425,621

See accompanying notes to the unaudited financial statements.

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LONGWEI PETROLEUM INVESTMENT HOLDING LIMITED

 STATEMENTS OF CASH FLOWS (Unaudited)

FOR THE SIX MONTHS ENDED DECEMBER 31, 2008 AND 2007

		Six months ended December 31,
				2008			2007
	Operating activities
	Net income		$	14,249,926	$		13,069,619
	Adjustments to reconcile net income from operations to net cash used in operating activities:
	Depreciation			196,676			179,599
	Warrant expense			636,742			127,348
	Accrued interest			123,123			2,762
	Changes in non-cash operating working capital items:
	Accounts receivable			(15,385,066)			(8,009,420)
	Other receivable			(3,078,051)
	Inventory			10,462,076			(4,755,726)
	Advance to suppliers			(5,695,786)			(7,130,352)
	Prepaid taxes			-			1,475,158
	Accounts payable			(192,671)			240,234
	Advance from customers			-			(379,057)
	Taxes payable			1,580,553			3,173,125
	Other current liabilities			19,051			43,240
	Net cash provided by (used in) operating activities			2,916,573			(1,963,470)
	Investing activities
	Purchase of equipment			(1,994,122)			(15,621)
	Net cash used in investing activities			(1,994,122)			(15,621)
	Financing activities
	Proceeds from the issuance of the convertible notes			-			2,100,000
	Payment for share issuance cost			-			-
Net cash provided by financing  activities			-			2,100,000
	Effect of exchange rate changes in cash			86,570			2,655,059
	Net increase in cash and cash equivalents			1,009,021			2,775,968
	Cash and cash equivalents, beginning of the period			8,632,879			6,060,428
	Cash and cash equivalents, end of the period		$	9,641,900	$		8,836,396
	Supplemental disclosure of cash flow information
	Cash paid during the period:
	Income taxes paid		$	3,960,761	$		2,919,949

See accompanying notes to the financial statements.

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LONGWEI PETROLEUM INVESTMENT HOLDING LIMITED

NOTES TO UNAUDITED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2008 AND 2007

1.

MANAGEMENT'S REPRESENTATION OF INTERIM FINANCIAL INFORMATION

The accompanying financial statements have been prepared by Longwei Petroleum Investment Holding Limited, Inc. without audit pursuant to the rules and regulations of the Securities and Exchange Commission.  Certain information and disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted as allowed by such rules and regulations, and management believes that the disclosures are adequate to make the information presented not misleading.  These financial statements include all of the adjustments, which in the opinion of management are necessary to a fair presentation of financial position and results of operations.  All such adjustments are of a normal and recurring nature. Interim results are not necessarily indicative of results for a full year.  

2.

SIGNIFICANT ACCOUNTING POLICIES

This summary of significant accounting policies of the Company is presented to assist in understanding the Company’s financial statements.  The financial statements and notes are representations of the Company’s management, which is responsible for their integrity and objectivity. These accounting policies conform to generally accepted accounting principles and have been consistently applied in the preparation of the financial statements.

Description of Business

Longwei Petroleum Investment Holding Limited (“we,” “us,” “our,” “Longwei”) was incorporated under the laws of the State of Colorado on March 17, 2000, under the name of Tabatha II, Inc. We changed our name to Longwei Petroleum Investment Holding Limited on October 12, 2007. We were formed as a “blind pool” or “blank check” company whose business plan was to seek to acquire a business opportunity through completion of a merger, exchange of stock, or other similar type of transaction. In furtherance of our business plan, we voluntarily elected to become subject to the periodic reporting obligations of the Securities Exchange Act of 1934 by filing a registration statement on Form 10-SB.

Prior to October 16, 2007, our only business activities were the organizational activities described above, including registration under the Securities Exchange Act of 1934, and efforts to locate a suitable business opportunity for acquisition. On October 16, 2007, the date of the closing of the Share Exchange, we acquired all of the issued and outstanding common stock of Longwei Petroleum Investment Holding Limited (“Longwei BVI”), a British Virgin Islands corporation incorporated on April 3, 2006.  Longwei BVI owns all of the issued and outstanding stock of Taiyuan Yahua Energy Conversion Co., Ltd. (“Taiyuan Yahua”), a Chinese limited liability company, which in turn is the sole shareholder ofTaiyuan Longwei Economy & Trading Co., Ltd. (“Taiyuan Longwei”), a Chinese limited liability company.   We issued 69,000,000 shares of common stock in the share exchange transaction for 100% of the ownership of Longwei BVI. As a result of the share exchange transaction, Longwei BVI and its subsidiaries became our wholly owned subsidiaries.

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LONGWEI PETROLEUM INVESTMENT HOLDING LIMITED

NOTES TO UNAUDITED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2008 AND 2007

2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

The former stockholders of Longwei BVI acquired 92% of our issued and outstanding common stock as a result of closing the share exchange transaction.  Therefore, although Longwei BVI became our wholly-owned subsidiary, the transaction was accounted for as a recapitalization of Longwei BVI, whereby Longwei BVI is deemed to be the accounting acquirer and is deemed to have adopted our capital structure.

All operating activities are carried out through our wholly-owned Chinese subsidiary, Taiyuan Longwei Economy & Trading Co., Ltd. (“Taiyuan Longwei”), which was incorporated in 1995.  The operating company is located in Taiyuan City, China.  We purchase diesel, gasoline, fuel oil and kerosene from various suppliers. As an intermediary, we seek to earn profits by buying diesel, gasoline, fuel oil and kerosene at competitive prices and selling them to other wholesalers. In addition, we also earn revenues by acting as a purchase agent where we charge an agency fee, a fee which is charged to wholesalers who do not have a license to purchase directly from refineries. Further, the company owns a gas station located on its property where it generates additional profit and revenue. The cost of our products is largely dependent on the price of crude oil. The price of crude oil is subject to fluctuation due to a variety of factors, all of which are beyond our control. When sudden and significant increases occur in the cost of fuel and lubricant products, we may not be able to pass on these increases through timely price increases to our customers. The timing of passing these costs to our customers can significantly affect our margins. The affect of lower crude oil prices, after the sale for a short time of higher priced inventory on hand at the time of the price decrease, reduces the cost of the products which, in turn, improves profit margins. Fuel oil is a liquid petroleum product that is burned in a furnace or boiler for the generation of heat or used in an engine for the generation of power. Solvents are unrefined petroleum products used in paint, dry-cleaning solvents, solvents for cutback asphalts and solvents for the rubber industry. We transport and market these products to other wholesale buyers. Our primary customers are large-scale gas stations, which represent 60% of our sales. These gas stations, which purchase diesel and gasoline from us, are located in Taiyuan City in the Shanxi Province of China. Our second largest group of customers is the coal plants and power supply companies that use our fuel oil for heat and power, along with our solvents, which comprise 30% of our business. Our third largest customers are the small independent gas stations. These represent 10% of our total sales, and purchase gasoline and diesel. Our operating company is located at No. 30 Guanghua Avenue, Xiaojingyu Xiang,Wan Bailin District, Taiyuan City, P.C. 030024, Shanxi Province, China, and our phone number is (86) 351-6527-366.

 (a)    Basis of Preparation

The financial statements of the Company are prepared in accordance with accounting principles generally accepted in the United States of America and include the accounts of the Company. This basis of accounting differs in certain material respects from that used for the preparation of the books and records of the Company, which are prepared in accordance with the accounting principles and the relevant financial regulations applicable to enterprises with limited liabilities, established in the PRC (“PRC GAAP”) the accounting standards used in the place of their domicile.

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LONGWEI PETROLEUM INVESTMENT HOLDING LIMITED

NOTES TO UNAUDITED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2008 AND 2007

2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

(b)    Economic and Political Risks

The Company's operations are conducted in the PRC. Accordingly, the Company's business, financial condition and results of operations may be influenced by the political, economic and legal environment in the PRC, and by the general state of the PRC economy.

The Company's operations in the PRC are subject to special considerations and significant risks not typically associated with companies in North America and Western Europe. These include risks associated with, among others, the political, economic and legal environment and foreign currency exchange. The Company's results may be adversely affected by changes in the political and social conditions in the PRC, and by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion, remittances abroad, and rates and methods of taxation.

(c)    Principles of Consolidation

The accompanying financial statements include Longwei Petroleum Investment Holding Limited, Inc., its wholly owned subsidiary, Longwei Petroleum Investment Holding Limited, a British Virgin Island corporation, its wholly owned subsidiary, Taiyuan Yahua Energy Conversion Co., Ltd., a Chinese Limited Liability Company, which owns 100% of the operating subsidiary, Taiyuan Longwei Economy & Trading Company, Ltd., a Chinese Limited Liability Company.  Intercompany transactions have been eliminated in consolidation.

 (d)    Property, Plant and Equipment

Property, plant and equipment are carried at cost less accumulated depreciation. Depreciation is provided over the assets' estimated useful lives, using the straight-line method. Estimated useful lives of the property, plant and equipment are as follows:

Buildings	20 years
Heavy machinery and production equipment	8- 20 years
Railway	20 years
Motor vehicles	5 years

The cost and related accumulated depreciation of assets sold or otherwise retired are eliminated from the accounts and any gain or loss is included in the statement of income. The cost of maintenance and repairs is charged to the statement of income as incurred, whereas significant renewals and betterments are capitalized.

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LONGWEI PETROLEUM INVESTMENT HOLDING LIMITED

NOTES TO UNAUDITED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2008 AND 2007

2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

(e)    Accounting for the Impairment of Long-Lived Assets

The long-lived assets held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of assets may not be recoverable. It is reasonably possible that these assets could become impaired as a result of technology or other industry changes. Determination of recoverability of assets to be held and used is by comparing the carrying amount of an asset to future net undiscounted cash flows to be generated by the assets. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.

There was no impairment of long-lived assets as of December 31, 2008.

(f)    Inventories

Inventories are stated at the lower of cost, determined on a weighted average basis, or net realizable value. Net realizable value is the estimated selling price in the ordinary course of business less the estimated cost of completion and the estimated costs necessary to make the sale.

When inventories are sold, their carrying amount is charged to expense in the year in which the revenue is recognized. Write-downs for declines in net realizable value or for losses of inventories are recognized as an expense in the year the impairment or loss occurs. There were no declines in net realizable value of inventory for six months ended December 31, 2008.

 (g)    Accounts Receivable

Trade receivables are recognized and carried at the original invoice amount less allowance for any uncollectible amounts. An estimate for doubtful accounts is made when collection of the full amount is no longer probable. Bad debts are written off as incurred.

(h)    Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents. Cash deposit in PRC banks are not insured by any government agency or entity.

(i)    Advances to Suppliers

Advances to suppliers represent the cash paid in advance for purchasing of inventory items from suppliers.

(j)    Fair Value of Financial Instruments

The Company's financial instruments include cash and cash equivalents, accounts receivable, prepaid taxes, advances to suppliers, other current assets, taxes payable, accounts payable and advances from customers.  

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LONGWEI PETROLEUM INVESTMENT HOLDING LIMITED

NOTES TO UNAUDITED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2008 AND 2007 

2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Management estimates that the carrying amounts of the non-related party financial instruments approximate their fair values due to their short-term nature.

 (k)    Revenue Recognition

The Company derives the bulk of its revenue from sales of gasoline, diesel, solvent oil and fuel oil. These product sales revenues are recognized when customers take possession of goods in accordance with the terms of purchase order agreements that evidence agreed upon pricing and when collectability is reasonably assured. Cost of revenues for product sales include costs to purchase and transport the product to the Company, costs to deliver the goods to the customer and depreciation on product storage and delivery equipment.

Agency service revenue consists of fees charged to small fuel distributors who lack the required licenses to purchase directly from large refineries. The Company allocates a portion of its purchasing quota to these customers for a fee similar to a sales commission. Agency service revenue is recognized when there is evidence of an arrangement that specifies pricing and irrevocable allocation of a portion of the Company’s purchase quota and collection has occurred. Cost of agency service revenues consists primarily of selling commissions.

 (l)    Foreign Currency Translation

The functional currency of the Company is Renminbi (“RMB”) and the RMB is not freely convertible into foreign currencies. The Company maintains its financial statements in the functional currency. Monetary assets and liabilities denominated in currencies other than the functional currency are converted into the functional currency at rates of exchange prevailing at the balance sheet date. Transactions denominated in currencies other than the functional currency are converted into the functional currency at the exchange rates prevailing at the dates of the transactions. Exchange gains or losses arising from foreign currency transactions, which are not material, are included in the determination of net income for the respective periods.

For financial reporting purposes, the financial statements of the Company which are prepared using the functional currency have been translated into United States dollars. Assets and liabilities are translated at exchange rates at the balance sheet dates and revenue and expenses are translated at the average exchange rates for each period and stockholders' equity is translated at historical exchange rates. Any translation adjustments resulting are not included in determining net income but are included in foreign currency translation adjustment to other comprehensive income, a component of stockholders' equity. The exchange rates adopted are as follows:

	2008
Period end RMB exchange rate		6.8225
Average period RMB exchange rate		6.8408

No representation is made that the RMB amounts could have been, or could be, converted into U.S. dollars at the rates used in translation.

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LONGWEI PETROLEUM INVESTMENT HOLDING LIMITED

NOTES TO UNAUDITED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2008 AND 2007

2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

(m)    Use of Estimates

The preparation of the financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Management makes these estimates using the best information available at the time the estimates are made; however actual results could differ materially from those estimates.

 (n)    Income Taxes

The company has implemented SFAS No. 109, "Accounting for Income Taxes," which provides for a liability approach to accounting for income taxes. Deferred income taxes result from the effect of transactions that are recognized in different periods for financial and tax reporting purposes. The company has recorded no deferred tax assets or liabilities as of December 31, 2008, since nearly all differences in tax bases and financial statement carrying values are permanent differences.

 (o)    Recent Accounting Pronouncements

In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141 (revised 2007), “Business Combinations” (“FAS 141R”) and Statement of Financial Accounting Standards No. 160, “Noncontrolling Interests in Consolidated Financial Statements, an Amendment of ARB No. 51” (“FAS 160”). These new standards are the U.S. GAAP outcome of a joint project with the International Accounting Standards Board (“IASB”). FAS 141R applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008 and will significantly change the accounting for business combinations in a number of areas, including the treatment of contingent consideration, acquisition costs, intellectual property, research and development, and restructuring costs. FAS 160 establishes reporting requirements that clearly identify and distinguish between the interests of the parent and the interests of the non-controlling owners. The Company is currently evaluating the impact of adopting FAS 141R and FAS 160 on its Consolidated Financial Statements which are effective for the Company at the beginning of its fiscal year 2010.

In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161, “Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133” (“FAS 161”), which requires enhanced disclosures about a company’s derivative and hedging activities. The Company currently is evaluating the impact of the adoption of the enhanced disclosures required by FAS 161 which is effective for the Company at the beginning of its fiscal year 2010.

In May 2008, the FASB issued Statement of Financial Accounting Standards No. 162, “The Hierarchy of Generally Accepted Accounting Principles (“FAS 162”). The new standard is intended to improve financial reporting by identifying a consistent framework, or hierarchy, for selecting accounting principles to be used in preparing financial statements that are presented in conformity with generally accepted accounting principles (“GAAP”) for nongovernmental entities in the United States. FAS 162 is effective 60 days following SEC approval of the Public Company Accounting Oversight Board Auditing amendments to AU Section 411, “The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles.” The Company is currently evaluating the impact, if any, of adopting FAS 162, on its Consolidated Financial Statement

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LONGWEI PETROLEUM INVESTMENT HOLDING LIMITED

NOTES TO UNAUDITED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2008 AND 2007

In May 2008, the FASB issued SFAS No. 163, Accounting for Financial Guarantee Insurance Contracts – an Interpretation of FASB Statement No. 60 (“SFAS 163”).  SFAS 163 clarifies how Statement 60 applies to financial guarantee insurance contracts, including the recognition and measurement of premium revenue and claim liabilities.  This Statement also requires expanded disclosures about financial guarantee insurance contracts.  SFAS 163 is effective for fiscal years beginning on or after December 15, 2008, and interim periods within those fiscal years.  The Company does not expect that the adoption of SFAS 163 will have a material impact on its financial statements.

3.    ACCOUNTS RECEIVABLE

The receivables and allowance balances at December 31 and June 30, 2008are as follows:

	December 31, 2008		June 30, 2008
Accounts receivable	$	27,584,670	$	12,134,507
Less: allowance for doubtful accounts		-		-
Accounts receivable, net	$	27,584,670	$	12,134,507

4.    INVENTORIES

Inventories are the unsold petroleum products purchased from various suppliers, and consist of the following as of December 31 and June 30, 2008:

		December 31,		June 30,
		2008		2008
Diesel Oil	$	7,097,812	$	16,433,154
Gasoline		9,177,098		12,619,687
Solvent Oil		2,189,838		-
Fuel Oil		281,873		-
Less: allowances for slowing moving items		-		-
Total	$	18,746,621	$	29,052,841

5.    ADVANCE TO SUPPLIERS

The Company has made payments to unrelated suppliers in advance of receiving products and services. The advance payments are meant to ensure preferential pricing and delivery. The amounts advanced under such arrangements totaled $ 34,174,816 and $ 28,327,067as of December 31, 2008 and June 30, 2008.

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LONGWEI PETROLEUM INVESTMENT HOLDING LIMITED

NOTES TO UNAUDITED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2008 AND 2007

6.

CONSTRUCTION IN PROGRESS

The Company has made improvements on its machine and equipment in the gas stations, which can prolong their useful life, and the cost is recorded to Construction in progress, and  transferred to property, plant and equipment when the improvement is completed.

		30-Jun-08		Addition		Transferred to property, plant and equipment		31-Dec-08
Construction in progress	$	-	$	1,993,404	$	1,172,591	$	820,813

7.    PROPERTY, PLANT AND EQUIPMENT

At December 31 and June 30, 2008, property, plant and equipment, at cost, consist of

		June 30, 2008		Impact of foreign currency exchange rate		Additions		December 31, 2008
Land and buildings	$	2,052,874	$	10,983	$	-	$	2,063,857
Machinery and production equipment		4,454,536		23,870		1,173,309		5,651,715
Total property, plant and equipment		6,507,410		34,853		1,173,309		7,715,572
Less: accumulated depreciation		(3,870,084)		-		(217,381)		(4,087,465)
Property, plant and equipment, net	$	2,637,326	$	34,853	$	955,928	$	3,628,107

Depreciation expense for the six months ended December 31, 2008 was $ 212,739.

8.  TAXES PAYABLE

Taxes payable consist of the following:

		December 31, 2008		June 30, 2008
Income tax payable	$	2,260,687	$	1,190,002
Value Added Tax payable		1,426,983		963,178
Business taxes payable and others		361,278		302,043
Total	$	4,048,948	$	2,455,223

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LONGWEI PETROLEUM INVESTMENT HOLDING LIMITED

NOTES TO UNAUDITED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2008 AND 2007

9.  ACCRUED PAYABLES

Other current liabilities consist of the following:

		December 31, 2008		June 30, 2008
Accrued salaries	$	15,302	$	15,221
Accrued staff welfare		250,806		230,518
Accrued expenses and miscellaneous		418,224		552,697
Total	$	684,332	$	798,436

10.    INCOME TAXES

(a)    Corporation Income Tax (“CIT”)

The Company is governed by the Income Tax Laws of the PRC. The PRC federal statutory tax rate is 25% since January 1, 2008.

The provision for income taxes for six months ended December 31, 2008 is summarized as follows:

	2008
Current		$	5,003,393
Deferred			-
		$	5,003,393

(b)    Value Added Tax (“VAT”)

In accordance with the relevant taxation laws in the PRC, the normal VAT rate for domestic sales is 5% to 17%, which is levied on the invoiced value of sales and is payable by the purchaser. The Company is required to remit the VAT it collects to the tax authority.

The value added tax refundable presents the VAT that the Company paid for the purchasing products and can be used to deduct the VAT related to the sale of products.

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LONGWEI PETROLEUM INVESTMENT HOLDING LIMITED

NOTES TO UNAUDITED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2008 AND 2007

11.    SEGMENT INFORMATION

	For the three months ended December 31, 2008
			Agency
		Product sales	Service	Total
Revenues		50,160,497	3,482,490	53,642,987
Cost of revenues		41,703,435	-	41,703,435
Gross profit		8,457,062	3,482,490	11,939,552
Income from operations		8,414,063	3,482,490	11,896,553
Total assets		110,426,901	-	110,426,901
Depreciation		100,210	-	100,210
	For the three months ended December 31, 2007
			Agency
		Product sales	Service	Total
Revenues		$      36,257,575	$    3,472,219	$     39,729,794
Cost of revenues		28,302,891	536,719	28,839,610
Gross profit		$        7,954,684	$    2,935,500	$      10,890,184
Income from operations		$        6,351,881	$     2,935,500	$        9,287,381
Total assets		$      81,774,542	$                   -	$      81,774,542
Depreciation		$             89,965	$                   -	$             89,965

	For the six months ended December 31, 2008
			Agency
		Product sales	Service	Total
Revenues		92,686,693	5,431,780	98,118,473
Cost of revenues		76,538,910	-	76,538,910
Gross profit		16,147,783	5,431,780	21,579,563
Income from operations		13,937,637	5,431,780	19,369,417
Total assets		110,426,901	-	110,426,901
Depreciation		196,676	-	196,676
	For the six months ended December 31, 2007
			Agency
		Product sales	Service	Total
Revenues		$  68,368,276	$  7,850,190	$ 76,218,466
Cost of revenues		53,737,384	796,116	54,533,500
Gross profit		$  14,630,892	$   7,054,074	$ 21,684,966
Income from operations		$   12,670,655	$   7,054,074	$ 19,724,729
Total assets		$   81,774,542	$                 -	$  81,774,542
Depreciation		$        179,599	$                 -	$       179,599

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LONGWEI PETROLEUM INVESTMENT HOLDING LIMITED

NOTES TO UNAUDITED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2008 AND 2007

12.    GEOGRAPHICAL INFORMATION

 The Company's revenues by geographic destination are analyzed as follows:

		For the Three Months Ended December 31,
		2008		2007
PRC	$	53,642,987	$	39,729,794
Outside PRC		-		-
Total net revenues	$	53,642,987	$	39,729,794

		For the six Months Ended December 31,
		2008		2007
PRC	$	98,118,473	$	76,218,466
Outside PRC		-		-
Total net revenues	$	98,118,473	$	76,218,466

13.    WARRANTS AND CONVERTIBLE NOTES

We completed a convertible note on December 18, 2007, in the amount of $2,100,000 at an interest rate of 4% per annum, with a conversion feature of $0.70 per share (the conversion price) at the option of the investor.  Additionally, warrants were granted at an exercise price of $0.80. The convertible note will give the Company $2,100,000. After disbursement of fees and expenses, the Company netted $1,800,000.   On January 29, 2009, the company entered into an amendment agreement where the notes dated December 18, 2007 were extended to September 18, 2009 at an interest rate of 8%.  The investors in turn will be issued Class B Warrants with the expiration date being for a term of five years. Both the Class A and B will have an exercise price of $.80 per share and will convert into the company's common shares. The investors will have piggyback registration rights on the common shares underlying the Class A and Class B Warrants. The investors will have cashless exercise rights on the Warrants. The company paid interest of $168,000 representing the accrued interest on the Notes as of December 18, 2008. In using the Black- Scholes Calculation the company will have a total expense of $1,528,180 for the life of the warrants.  The note was for a period of 12 months expiring December 17, 2008. Each month’s expense would be $127,348.

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ITEM  2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

DISCLAIMER REGARDING FORWARD LOOKING STATEMENTS

Certain statements in this Form 10-Q, which are not statements of historical fact, are what are known as "forward-looking statements," which are basically statements about the future. For that reason, these statements involve risk and uncertainty since no one can accurately predict the future. Words such as "plans," "intends," "hopes," "seeks," "anticipates," "expects," and the like, often identify such forward looking statements, but are not the only indication that a statement is a forward-looking statement. Such forward-looking statements include statements concerning our plans and objectives with respect to our present and future operations, and statements which express or imply that such present and future operations will or may produce revenues, income or profits. These and other factors may cause our actual results to differ materially from any forward-looking statement.  We caution you not to place undue reliance on these forward-looking statements.  Although we base these forward-looking statements on our expectations, assumptions, and projections about future events, actual events and results may differ materially, and our expectations, assumptions, and projections may prove to be inaccurate. The forward-looking statements speak only as of the date hereof, and we expressly disclaim any obligation to publicly release the results of any revisions to these forward-looking statements to reflect events or circumstances after the date of this filing.

Overview

Longwei Petroleum Investment Holding Limited (“we,” “us,” “our,” “Longwei”) was incorporated under the laws of the State of Colorado on March 17, 2000, under the name of Tabatha II, Inc. We changed our name to Longwei Petroleum Investment Holding Limited on October 12, 2007. We were formed as a “blind pool” or “blank check” company whose business plan was to seek to acquire a business opportunity through completion of a merger, exchange of stock, or other similar type of transaction. In furtherance of our business plan, we voluntarily elected to become subject to the periodic reporting obligations of the Securities Exchange Act of 1934 by filing a registration statement on Form 10-SB.

Prior to October 16, 2007, our only business activities were the organizational activities described above, including registration under the Securities Exchange Act of 1934, and efforts to locate a suitable business opportunity for acquisition. On October 16, 2007, the date of the closing of the Share Exchange, we acquired all of the issued and outstanding common stock of Longwei Petroleum Investment Holding Limited (“Longwei BVI”), a British Virgin Islands corporation incorporated on April 3, 2006.  Longwei BVI owns all of the issued and outstanding stock of Taiyuan Yahua Energy Conversion Co., Ltd. (“Taiyuan Yahua”), a Chinese limited liability company, which is in turn the sole shareholder of Taiyuan Longwei Economy & Trading Co., Ltd. (“Taiyuan Longwei”), a Chinese limited liability company.   We issued 69,000,000 shares in the share exchange transaction for 100% of the ownership of Longwei BVI. As a result of the share exchange transaction, Longwei BVI and its subsidiaries became our wholly owned subsidiaries.

 Taiyuan Yahua was incorporated on August 11, 2006.  The operating subsidiary, Taiyuan Longwei, is located in Taiyuan City, China, and was established in 1995 as a Chinese limited liability company.  We purchase diesel, gasoline, fuel oil and kerosene from various suppliers. As a licensed intermediary, we seek to earn profits by buying diesel gasoline fuel oil and kerosene at competitive prices and selling them to other wholesalers. In addition, we also earn revenue by acting as a purchase agent where we charge an agency fee, a fee which is charged to other wholesalers who do not have a license to purchase directly from refineries.   The cost of our products is largely dependent on the price of crude oil. The price of crude oil is subject to fluctuation due to a variety of factors, all of which are beyond our control. When sudden and significant increases occur in the cost of fuel and lubricant products, we may not be able to pass on these increases through timely price increases to our customers. The timing of passing these costs through to our customers can significantly affect our margins. The affect of lower crude oil prices, after the sale for a short time of higher priced inventory on hand at the time of the price decrease, reduces the cost of the products which in turn improves profit margins. Fuel oil is a liquid petroleum product that is burned in a furnace or boiler for the generation of heat or used in an engine for the

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generation of power.  Solvents are unrefined petroleum products used in paint, dry-cleaning solvents, solvents for cutback asphalts and solvents for the rubber industry. We transport and market these products to other wholesale buyers.  Our primary customers are large-scale gas stations, which represent 60% of our sales and which are located in Taiyuan City in the Shanxi Province of China.  They primarily buy diesel and gasoline.  Our second largest group of customers is coal plants and power supply companies which use our fuel oil for heat and power along with our solvents; these comprise 30% of our business.  Our third largest customer is the small, independent gas station which represents 10% of our total sales.  These stations buy gasoline and diesel from us.

We currently have 14 storage tanks that allow us to store 50,000 metric tons of our products. In addition, we own our own rail system to transport our products to our customers.  

We have been granted a Finish Oil Wholesale license which allows our company to engage in the wholesale business of gasoline, fuel oil and diesel oil.  This license is granted by the People’s Republic of China.  In addition, we also have a special license for Dangerous Chemical Products Businesses that allows us to handle gasoline and diesel oil.  The Finish Oil Wholesale License allows us to engage in the business of these products. There is no expiration date on this license.  The Dangerous Chemical Products Businesses license is renewed every three years.  The People’s Republic of China’s constitution states that all mineral and oil resources belong to the State.  Without these licenses, we would not be allowed to sell our products.  

Results of Operations

Revenue

The following table shows the different components comprising our total revenue for the three months ending December 31, 2008 and December 31, 2007.

All amounts in thousands of U.S. dollars

Sales by Products		2008		% of total revenues		Volume of sales in thousands	2007	% of total revenues		Volume of sales in thousands
						(gallons)				(gallons)
Diesel Oil		27,013		50.4%		9,258	20,847	52.5%		8,651
	Gasoline		21,248		39.6%	7,274	9,895		24.9%	4,477
	Fuel Oil		650		1.2%	604	2,153		5.4%	1,087
	Kerosene		1,249		2.3%	302	3,363		8.5%	1,682
	TOTALS Petroleum Products		50,160		93.5%	17,438	36,258		91.3%	16,897
	Agency Fee		3,483		6.5%		3,472		8.7%
	TOTAL REVENUE		53,643		100%		39,730		100%

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The following table shows the different components comprising our total revenue for the six months ending December 31, 2008 and December 31, 2007.

All amounts in thousands of U.S. dollars

Sales by Products		2008		% of total revenues		Volume of sales in thousands	2007	% of total revenues		Volume of sales in thousands
						(gallons)				(gallons)
Diesel Oil		52,552		53.6%		18,112	39,183	51.4%		17,154
	Gasoline		38,235		39.0%	13,267	22,434		29.4%	10,129
	Fuel Oil		650		.6%	604	3,388		4.5%	1,710
	Kerosene		1,249		1.3%	302	3,363		4.4%	1,682
	TOTALS Petroleum Products		92,686		94.5%	32,285	68,368		89.7%	31,675
	Agency Fee		5,432		5.5%		7,850		10.3%
	TOTAL REVENUE		98,118		100%		76,218		100%

For the three months ended December 31, 2008, revenues were $53.643 million, an increase of $13.913 million or approximately 35.0% as compared to $39.730 million for the same period in December 31, 2007. This increase was the result of stronger overall demand for petroleum products.  Diesel sales were $27.013 million or

approximately 9.258 million gallons, an increase of $6.166 million and a increase of  approximately .607 million gallons, in the three months period year ending December 31, 2008, compared to $20.847 million or approximately 9.651 million gallons for the three months ending December 31, 2007. Gasoline sales were $21.248 million or approximately 7.274 million gallons, an increase of $11.353 million or approximately 114.7% increase and an increase of 2.797 million gallon, compared to gasoline sales of $9.895 million or approximately 4.477 million gallons for the three months ending December 31, 2007.   This increase was mainly the result of greater purchases by our existing customers, primarily power supply companies due to the continued growth of Shanxi Province.

For the six months ended December 31, 2008, revenues were $98.118 million, an increase of $21.900 million or approximately 28.7% as compared to $76.218 million for the same period in December 31, 2007. This increase was the result of stronger overall demand for petroleum products.  Diesel sales were $52.552 million or

approximately 18.112 million gallons, an increase of $13.369 million and an increase of  approximately .958 million gallons, in the six months period year ending December 31, 2008, compared to $39.183 million or approximately 17.154 million gallons for the six months ending December 31, 2007. Gasoline sales were $38.235 million or approximately 13.267 million gallons, an increase of $15.801 million or approximately 70.4% increase and an increase of 3.138 million gallon, compared to gasoline sales of $22.434 million or approximately 10.129 million gallons for the six months ending December 31, 2007.   This increase was mainly the result of greater purchases by our existing customers, primarily power supply companies due to the continued growth of Shanxi Province. In addition, the increase of petroleum products for the six months ending December 31, 2008 was mainly due to the following factors: the population in China in general has become wealthier; as a result, the demand for petroleum has increased and the economy in Shanxi Province where the Company's major customers are continued to experience growth. Management expects growth for the fiscal year 2009 to remain strong due to (i) continued strong growth in the China economy, (ii) a continued improvement in the wealth of its citizens, and (iii) business strategy of increasing storage for our products.  For the six months ended December 31, 2008, 45 %

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of our customers were large-scale gas stations located in Taiyuan City in the Shanxi Province, compared to 60% for the six months ended December 31, 2007.   Our second largest group of customers is coal plants and power supply companies which use our diesel, gasoline and fuel oil to generate heat and power this group provided 45% of our business in 2008 compared to 30% in 2007. This group of customers will continue to remain strong as our local economy continues to grow and new power plants are built. We anticipate that in the fiscal year 2009 this group will represent 55% to 60% of our sales, as the company will focus on this particular customer segment due to larger bulk sales. Our third largest customer is the small, independent gas station which represents 10% of our total sales.  These stations buy gasoline and diesel from us.  This group will continue to remain strong as more cars are being used for transportation in Shanxi Province.

Agency fees were $3.483 million for the three months period ending December 31, 2008 compared to $3.472 million for the three months ending December 31, 2007 a slight increase of .11 million.

 Agency fee revenues were $5.432 million for the six months ended December 31, 2008, compared to $7.850 million in the same period of 2007.  The decrease of $2.418 million or approximately 30.8% was due to the expected decline in agency fees. Agency fees are fees from companies not possessing the required license to buy direct from refineries.   We purchase petroleum on their behalf and arrange delivery for them.  The China government continues to grant licenses to other wholesalers to buy direct. Thus, we anticipate that agency fees will be reduced further in the future unless we are able to obtain new customers that want to go direct but do not have the required license.

Cost of Goods Sold

Cost of goods sold for the three months ended December 31, 2008 increased by $12.863 million or 44.6 %, to $41.703 million as compared to $28.840 million for the same quarter of 2007. This increase was mainly attributable to the increase of sales revenue.

Cost of goods sold for the six months ended December 31, 2008 increased by $22.005 million or 40.3 %, to $76.539 million as compared to $54.534 million for the six months period December 31, 2007. This increase was mainly attributable to the increase of sales revenue

The following table illustrates the items constituting our cost of goods sold for the three months ending December 31, 2008 and December 31, 2007.

(All amounts, other than percentages, in thousands of U.S. dollars)

	Cost of Goods		2008		% of total cost of goods sold		% of total cost of goods vs its revenue		2007		% of total cost of goods		% of total cost of goods vs revenue
Diesel Oil		22,949		55.0%		85.0%		14,798		51.3%		71.0%
Gasoline		17,055		40.9%		80.3%		8,697		30.2%		87.9%
Fuel Oil		575		1.4%		88.5%		1,830		6.3%		85.0%
Kerosene		1,124		2.7%		90.0%		2,978		10.3%		88.6%
TOTAL COST Petroleum Products		41,703		100%		83.1%		28,303		98.1%		78.1%
Agency Fee		0		0%		0%		537		1.9%		15.5%
TOTAL COST OF GOODS		41,703		100%				28,840		100%

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The following table illustrates the items constituting our cost of goods sold for the six months ending December 31, 2008 and December 31, 2007.

(All amounts, other than percentages, in thousands of U.S. dollars)

	Cost of Goods		2008		% of total cost of goods sold		% of total cost of goods vs its revenue		2007		% of total cost of goods		% of total cost of goods vs revenue
Diesel Oil		44,701		58.4%		85.0%		29,481		54.1%		75.2%
Gasoline		30,139		39.4%		78.8%		18,470		33.9%		82.3%
Fuel Oil		575		.7%		88.5%		2,808		5.0%		82.9%
Kerosene		1,124		1.5%		90.0%		2,978		5.5%		88.6%
TOTAL COST Petroleum Products		76,539		100%		78.0%		53,737		98.5%		78.6%
Agency Fee		0		0%		0%		797		1.5%		10.1%
TOTAL COST OF GOODS		76,539		100%				54,534		100%

Gross Profit Margin

Our gross profit margin was 22.3% for the three months ended December 31, 2008, compared to 27.4% for the three months ended December 31, 2007. The decrease was the result of the gross margins on diesel were approximately 15.0% for the quarter ending December 31, 2008 compared to 29.0% in quarter ending December 31, 2007.  The gross margins on gasoline were approximately 19.7% in the quarter ending December 31, 2008 compared to 12.1% for the same quarter in 2007, improving by approximately 7.6%. The decrease of diesel margins was the result of the company locking in fuel prices where diesel prices decreased.  The increase in gasoline margins was the result of higher demand for gasoline in the Shanxi Province primarily by our power supply customers.

Our gross profit margin was 22.0% for the six months ended December 31, 2008, compared to 28.5% for the six months ended December 31, 2007. The decrease was the result of the gross margins on diesel were approximately 15.0% for the six months ending December 31, 2008 compared to 24.8% in six months ending December 31, 2007.  The gross margins on gasoline were approximately 21.2% in the six months period ending December 31, 2008 compared to 17.7% for the same quarter in 2007, improving by approximately 3.5%. The decrease of diesel margins was the result of the company locking in fuel prices where diesel prices decreased.  The increase in gasoline margins was the result of higher demand for gasoline in the Shanxi Province  primarily by our power supply customers .

The company made advance to suppliers of approximately $34.175 million in the six months ending December 31, 2008 compared to $22.676 million in December 31, 2007. The risk associated with maintaining huge quantities of inventory and amounts of advances to suppliers has the effect of locking in prices.  We pay for fuel well in advance of the time we deliver commodities and establish customer prices.  Therefore, our gross margins will vary considerably from period to period, based on short-term prices of petroleum products. Management does not provide any type of hedging activity in order to reduce this risk; however management monitors petroleum prices in an effort to maintain profitability.

Selling General and Administrative Expenses

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Selling, general and administrative expenses were $42,999 for the three months ending December 31, 2008, as compared to $1,529,150 as a result of a holiday period in the last week of the quarter in  China where many of the administrative expenses were paid in the first quarter to avoid having late payments.

Selling, general and administrative expenses were $2.118 million for the six months ending December 31, 2008, a $.267 million increase, compared to $1.850 for the same period in 2007.  The increases for  the six month period was due to the increased costs associated with the being public.

Depreciation and Amortization

Depreciation and amortization expenses were $100,210 for the quarter ending December 31, 2008, an increase of $10,245 over the depreciation expense of $89,965 for the quarter ending December 31, 2007.

Depreciation and amortization expenses were $196,676 for the six months ending December 31, 2008, an increase of $17,077 over the depreciation expense of $179,599 for the six months ending December 31, 2007.

Income Tax Expenses

We incurred income tax expenses of $3,038,764 for the quarter ending December 31, 2008, a decrease of $198,860 or approximately 6.1%, versus $3,237,624 for the quarter ending December 31, 2007.

We incurred income tax expenses of $5,003,393 for the six months ending December 31, 2008, a decrease of $1,671,809 or approximately 25.0%, versus $6,675,202 for the six months ending December 31, 2007. The company is governed by the income tax laws of China. The China statutory tax rate is 30% and the local tax rate is 3%.

Net Income

We earned a net income of $8.759 million for the quarter ended December 31, 2008, an increase of $3.008 million or approximately 52.3% as compared to $5.750 million for the quarter ending December 31, 2007. This was primarily due to the increase in sales of petroleum products especially to power supply companies in the Shanxi Province during the quarter.

In the six-month period ending December 31, 2008 net income was $14.250 million, an increase of $1.180 million or approximately 9.0% as compared to $13.070 million for six month period ending December 31, 2007. This was primarily due to the increase in sales of petroleum products especially to power supply companies in the Shanxi Province during the period.

Net Income Margin

Net income margin for the quarter ending December 31, 2008 was approximately 16.3% compared to approximately 14.5% for the quarter ending December 31, 2007. This increase as described above was largely the result of higher profit margins on gasoline products. In addition agency fees contributed to the improved margins as agency fee profits increased by $546,990. Management anticipates that net income margin will remain in the 12 to 17% profit range due to increase of costs associated with being a public company and the future declines in agency fees.

Net income margin for the six months ending December 31, 2008 was approximately 14.5% compared to approximately 17.1% for the six months ending December 31, 2007. This decrease was the result of a decline in diesel profit margins due to the company locking in prices well in advance prior to selling to their customers. In addition, agency fee profit decreased by $1.622. Management anticipates that net income margin will remain in

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the 12 to 17% profit range due to increase of costs associated with being a public company and the future declines in agency fees.

Inflation

Inflationary factors such as increases in the cost of our product and overhead costs may adversely affect our operating results. Although we do not believe that inflation has had a material impact on our financial position or results of operations to date, a high rate of inflation in the future may have an adverse effect on our ability to maintain current levels of gross margin and selling, general and administrative expenses as a percentage of net revenues if the selling prices of our products do not increase with these increased costs.

Foreign Currency Translation Adjustment

Our operating subsidiaries are located in China.  The operating subsidiaries purchase all products and render services in China, and receive payment from customers in China using RMB as the functional currency.  We do not engage in currency hedging.

We incurred a foreign currency translation adjustment loss of $436,430 for the quarter ending December 31, 2008 as compared with the foreign currency translation adjustment gain of $1,871,808 for the quarter ending December 31, 2007. On July 21, 2005, China reformed its foreign currency exchange policy, revalued RMB by 2.1 percent and allowed the RMB to appreciate as much as 0.3 percent per day against the U.S. dollar. We implemented different exchange rates in translating RMB into U.S. dollars in our financial statements for quarter ending December 31, 2008. We used an exchange rate of 6.82 for assets and liabilities and used the average exchange rate of 6.84 for revenues and expenses, compared to the exchange rate of 7.31 in 2007 for assets and liabilities and 7.41 as the average rate used in calculating revenue and expenses. Historical exchange rates for shareholders’ equity were used.

Assets and liabilities are translated at exchange rates at the balance sheet dates and revenue and expenses are translated at the average exchange rates and shareholders’ equity is translated at historical exchange rates. Any translation adjustments resulting are not included in determining net income but are included in foreign exchange adjustment to other comprehensive income, a component of stockholders’ equity.  If the RMB appreciates against the U.S. dollar, revenue and expenses would be higher than they would have been if there were no fluctuations in the currencies.  Conversely, if the RMB depreciates against the U.S. dollar, revenue and expenses would be lower than they would have been if there were no fluctuations in the currencies. The exchange rates adopted are as follows for quarter ending December 31, 2008 and December 31, 2007:

	2008		2007
Year end RMB: exchange rate		7.304		6.859
Average yearly RMB: exchange rate		7.406		7.276

Liquidity and Capital Resources

As of December 31, 2008, we had cash and cash equivalents of $9,641,900 compared to cash and cash equivalents in the beginning of the period of $8,632,879 in period ending December 31, 2007. This was primarily the result of a decrease in inventories. The following table provides detailed information about our net cash flow for the December 31 period in 2008 and 2007 respectively.

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	For the quarter ended December 31,
		2008			2007
Cash and cash equivalents, beginning of period			$	8,632,879		$	6,060,428
Net cash provided (used in) operating activities			$	2,916,573		$	(1,963,470)
Net cash (used in) investing activities				(1,994,122)			(15,621)
Net cash provided by financing activities				-			2,100,000
Effect of exchange rate, changes in cash				86,570			2,655,059
Cash and cash equivalents, end of the period			$	9,641,900		$	8,836,396

Operating Activities:

Net cash provided in operating activities was $$2,916,573 for the six month period ending December 31, 2008, compared in the net cash used of $1,963,470 for the six months period ending December 31, 2007. This was largely the result of decreases in inventory as a result of strong. This was partially offset by increases to advances to suppliers to increase inventory levels to meet demands of our customers.

Investing Activities:

Net cash used in investing activities was $1,994,122 in the six months ending December 31, 2008 to purchase new storage equipment to prepare for anticipated stronger demand from our customers. This compares to net cash used in investing activities of $15,622 in December 31, 2007.

Financing Activities:

The company had no cash used in financing activities in the six month period ending December 31, 2008 compared to net cash used in financing activities of $2,100,000 in the same period of December, 2007. 

Critical Accounting Policies

The preparation of financial statements, in conformity with accounting principles generally accepted in the United States, requires our management to make assumptions, estimates and judgments that affect the amounts reported in the financial statements, including the notes thereto, and related disclosures of commitments and contingencies, if any. We consider our critical accounting policies to be those that require the more significant judgments and estimates in the preparation of financial statements, including the following:

Basis of Consolidation - The consolidated financial statements of the Company and its subsidiaries are prepared in accordance with accounting principles generally accepted in the United States of America and include the accounts of the Company and its subsidiaries. All material inter-company accounts and transactions have been eliminated in the consolidation. 

Inventories -Inventories are stated at the lower of cost, determined on a weighted average basis, or net realizable value. Net realizable value is the estimated selling price in the ordinary course of business less the estimated costs necessary to make the sale.

When inventories are sold, their carrying amount is charged to expense in the year in which the revenue is recognized. Write-downs for declines in net realizable value or for losses of inventories are recognized as an expense in the year the impairment or loss occurs. There were no declines in net realizable value of inventory for the six-month period ending December 31, 2008.

Revenue Recognition

The Company derives the bulk of its revenue from the trading of gasoline, diesel, kerosene and fuel oil, and also has revenues from agency service and transportation service.

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In accordance with the Securities and Exchange Commission ("SEC") Staff Accounting Bulletin No. 104, Revenue Recognition ("SAB 104"), the Company recognizes revenue when the following fundamental criteria are met: (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred or services have been rendered, (iii) the price to the customer is fixed or determinable and (iv) collection of the resulting receivable is reasonably assured.

Foreign Currency Translation - The functional currency of the Company is RMB and RMB is not freely convertible into foreign currencies. The Company maintains its financial statements in the functional currency. Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency at rates of exchange prevailing at the balance sheet date. Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing at the dates of the transactions. Exchange gains or losses arising from foreign currency transactions are included in the determination of net income for the respective periods.

Use of Estimates-The preparation of the financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Management makes these estimates using the best information available at the time the estimates are made; however actual results could differ materially from those estimates. 

Recent Accounting Pronouncements

In December 2007, the FASB issued SFAS No. 141R, "Business Combinations" ("SFAS No. 141R"). SFAS No. 141R amends SFAS 141 and provides revised guidance for recognizing and measuring identifiable assets and goodwill acquired, liabilities assumed, and any noncontrolling interest in the acquiree. It also provides disclosure requirements to enable users of the financial statements to evaluate the nature and financial effects of the business combination. It is effective for fiscal years beginning on or after December 15, 2008 and will be applied prospectively. We are currently evaluating the impact of adopting SFAS No. 141R on our consolidated financial statements.

In December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in Consolidated Financial Statements — an amendment of ARB No. 51" ("SFAS No. 160”). SFAS No. 160 requires that ownership interests in subsidiaries held by parties other than the parent, and the amount of consolidated net income, be clearly identified, labeled, and presented in the consolidated financial statements. It also requires once a subsidiary is deconsolidated, any retained noncontrolling equity investment in the former subsidiary be initially measured at fair value. Sufficient disclosures are required to clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owners. It is effective for fiscal years beginning on or after December 15, 2008 and requires retroactive adoption of the presentation and disclosure requirements for existing minority interests. All other requirements shall be applied prospectively. We are currently evaluating the impact of adopting SFAS No. 160 on our consolidated financial statements.

In March 2008, FASB issued Financial Accounting Standards No. 161, “Disclosure about Derivative Instruments and Hedging Activities - an amendment to FASB Statement No. 133.” The use and complexity of derivative instruments and hedging activities have increased significantly over the past several years. Constituents have expressed concerns that the existing disclosure requirements in FASB Statement No. 133, “Accounting for Derivative Instruments and Hedging Activities,” do not provide adequate information about how derivative and hedging activities affect an entity’s financial position, financial performance, and cash flows. Accordingly, this Statement requires enhanced disclosures about an entity’s derivative and hedging activities and thereby improves the transparency of financial reporting. This Statement is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008.

In May 2008, the FASB issued Statement No. 162, “The Hierarchy of Generally Accepted Accounting Principles.”  This statement identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in

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conformity with generally accepted accounting principles (GAAP) in the United States (the GAAP hierarchy).  This statement is effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, “the Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles.”

In May 2008, the FASB issued Statement No. 163 “Accounting for Financial Guarantee Insurance Contracts—an interpretation of FASB Statement No. 60.”  The premium revenue recognition approach for a financial guarantee insurance contract links premium revenue recognition to the amount of insurance protection and the period in which it is provided. For purposes of this statement, the amount of insurance protection provided is assumed to be a function of the insured principal amount outstanding, since the premium received requires the insurance enterprise to stand ready to protect holders of an insured financial obligation from loss due to default over the period of the insured financial obligation.  This Statement is effective for financial statements issued for fiscal years beginning after December 15, 2008.

Seasonality

Our operating results and operating cash flows historically have been subject to seasonal variations. Our revenues are usually higher in the first half of the year than in the second half of the year because of the increased demand for gasoline and diesel during and around the Chinese spring festival.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Interest Rate Risk

The Company deposits surplus funds with Chinese banks earning daily interest. The Company does not invest in any instruments for trading purposes. The Company’s operations are not sensitive to fluctuations in interest rates.

Foreign Exchange Risk

While our reporting currency is the U.S. Dollar, all of our consolidated revenues and consolidated costs and expenses are denominated in RMB. All of our assets are denominated in RMB. As a result, we are exposed to foreign exchange risk as our revenues and results of operations may be affected by fluctuations in the exchange rate between U.S. Dollars and RMB. If the RMB depreciates against the U.S. Dollar, the value of our RMB revenues, earnings and assets as expressed in our U.S. Dollar financial statements will decline. We have not entered into any hedging transactions in an effort to reduce our exposure to foreign exchange risk.

Inflation

Inflationary factors such as increases in the cost of our product and overhead costs may adversely affect our operating results. Although we do not believe that inflation has had a material impact on our financial position or results of operations to date, a high rate of inflation in the future may have an adverse effect on our ability to maintain current levels of gross margin and selling, general and administrative expenses as a percentage of net revenues if the selling prices of our products do not increase with these increased costs.

Commodity Risk

There is uncertainty related to the Chinese government's ability and/or willingness to subsidize Company operations in a declining market.  Additionally, the risk associated with maintaining large quantities of inventory and amounts of advances to suppliers has the effect of locking in prices the Company pays for fuel well in advance of the time we deliver the commodities and establish customer pricing.  A dip in short-term prices in fuel costs will result in declining profits for the Company, which will affect the Company's ability to purchase future petroleum products and make advances to suppliers, since the Company uses its cash to purchase inventory and increase advances to suppliers. We manage our exposure in the following ways: if the price of petroleum declines significantly, the Company will buy additional petroleum inventory to provide a lower average cost.  Purchase of petroleum products from refineries has a fixed price based on volume. The price will be properly adjusted by the refinery in light of the market if there should be significant changes in the price of oil.  The refineries in China are under the control of the Chinese government. Therefore, our market risk is limited as a result of the control by the Chinese government.At the present time, the Chinese government is not concerned with gross margins on services such as agency fees.  The Chinese government allows the market to determine prices. In the event that the company exceeds the unofficial guideline of 40% consolidated gross margins the impact of agency fees would be taken into account and deducted from total gross margins in determining if this limit has been exceeded. There is no indication that these policies will change in the future regarding any type of guidelines for agency fees gross profits.

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CORPORATE STRUCTURE

The chart below depicts our corporate structure.As depicted below, we own 100% of the capital stock of Longwei BVI.  Longwei BVI incorporated in the British Virgin Islands in April 2006, owns 100% of the capital stock of Taiyuan Yahua, and Taiyuan Yahua owns 100% of the capital stock of Taiyuan Longwei, the operating subsidiary.  Taiyuan Yahua was established in August 2006 as a Chinese limited liability company.  Taiyuan Longwei was established as a Chinese limited liability company in July 1995.  As of October 16, 2007, the date of the closing of the Share Exchange Agreement, all of our operations are conducted by and through Taiyuan Longwei.  

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ITEM 4T.

CONTROLS AND PROCEDURES

The Securities and Exchange Commission defines the term “disclosure controls and procedures” to mean a company's controls and other procedures of an issuer that are designed to ensure that information required to be disclosed in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Securities Exchange Act of 1934 is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.  The Company maintains such a system of controls and procedures in an effort to ensure that all information which it is required to disclose in the reports it files under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified under the SEC's rules and forms and that information required to be disclosed is accumulated and communicated to principal executive and principal financial officers to allow timely decisions regarding disclosure.

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our chief executive officer and principal accounting officer, of the effectiveness of the design and operation of our disclosure controls and procedures.  Based on this evaluation, our chief executive officer and principal accounting officer concluded that our disclosure controls and procedures are designed to provide reasonable assurance of achieving the objectives of timely alerting them to material information required to be included in our periodic SEC reports and of ensuring that such information is recorded, processed, summarized and reported with the time periods specified.  Our chief executive officer and principal accounting officer also concluded that our disclosure controls and procedures were effective as of June 30, 2008 to provide reasonable assurance of the achievement of these objectives.

There was no change in the Company's internal control over financial reporting during the six month period ended December 31, 2008, that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.

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PART II.  OTHER INFORMATION

Item 1.

Legal Proceedings

None

Item 1A.

Risk Factors

We face risks in operating our business, including risks that may prevent us from achieving our business objectives or that may adversely affect our business, financial condition and operating results. Risks relating to our business and industry include, among others: our ability to attract new customers; our ability to maintain our gross margin of petroleum products and petroleum product purchases, and competition and competitive factors in the markets in which we compete.  There are no material changes to the risk factors previously disclosed in the Company's last annual report on Form 10-K.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

None

Item 3.

Defaults upon Senior Securities

None

Item 4.

Submission of Matters to a Vote of Security Holders

None

Item 5.

Other Information

None

Item 6.

Exhibits

The following exhibits are filed herewith:

3(i)

Articles of Incorporation (incorporated by reference from Registration Statement on Form 3(i) Articles of Incorporation (incorporated by reference from Registration Statement on Form 10-SB filed with the Securities and Exchange Commission on October 11, 2000).

3(ii)

Bylaws (incorporated by reference from Registration Statement on Form 10-SB filed with the Securities and Exchange Commission on October 11, 2000).

31.1

Certifications pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2

Certifications pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1

Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2

Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

LONGWEI PETROLEUM INVESTMENT HOLDING LIMITED

By: /s/ Cai Yongjun, Chief Executive Officer (duly authorized officer)

By: /s/ Wang Junping, Chief Financial Officer (principal accounting and financial officer)

Date:  February 13, 2009

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